CHF (Swiss Franc)

What is the CHF (Swiss Franc)

CHF is the currency abbreviation for Switzerland's currency, the Swiss franc. The abbreviation "CHF" is derived from the Latin name of the country, "Confoederatio Helvetica," with the "F" standing for "franc." The Swiss franc was officially recognized as Switzerland's currency in May of 1850, when it replaced several currencies issued by the different cantons.

Basics of CHF (Swiss Franc)

Switzerland is comprised of 26 different cantons — or member states — and there are four official languages: German, French, Italian and Romansh. The Swiss franc is one of the few unifying characteristics of the country; it is also legal tender in the Principality of Liechtenstein. The Swiss Federal Constitution of 1848 specified that only the federal government would be permitted to issue money, and the franc was introduced two years later.

There were a total of 72.255 trillion Swiss francs in circulation on average in 2016, according to the Swiss National Bank.

Background

The Swiss franc was first issued in 1850 and was on par with the French franc. Between 1865 and the 1920s, Switzerland, Belgium, France and Italy formed the Latin Monetary Union; the prices of all four currencies were linked to the price of silver. The Swiss franc was part of the Bretton Woods exchange rate system that was established in the aftermath of World War II and lasted until the early 1970s. The currency's exchange rate was tied to the price of gold until a referendum in May 2000.

Between 2003 and 2006, the Swiss franc was stable against the euro. It was even valued higher than the USD in 2008.

Switzerland is known for its neutrality: It has not participated in an armed conflict since 1815. The country's banks have had a policy of secrecy dating back to the Middle Ages, and this was written into law in 1934. The secrecy laws were amended in 2009 to limit tax evasion by non-Swiss account holders.

Key Takeaways

The Swiss Franc (CHF) is the official currency of Switzerland and Liechtenstein and is the world's sixth most-traded currency.

It is considered s safe haven currency during times of crisis because of Switzerland's economic stability.

Safe Haven Status

The Swiss National Bank has long followed a zero inflation policy; this has combined with the country's political neutrality to make the franc an exceptionally strong and stable currency. The franc's so-called safe haven status means that it appreciates during times of economic and political instability, which was the case when the European debt crisis erupted in 2008.

In September 2011, the Swiss National Bank began an active policy of intervention in the currency markets combined with interest rate cuts in order to weaken the franc against the euro, capping its strength at 1.20 francs to the euro. The SNB introduced a policy of negative interest rates in December 2014, but the currency continued to appreciate. The 1.20 cap was abandoned in January 2015. Swiss stocks tumbled dramatically, while the Swiss franc soared about 30% relative to the euro within minutes. Some investors and firms were wiped out.

Economists and investors strongly criticized the SNB's actions for dropping the peg without warning and for implementing it in the first place. Its actions were also unpopular in Switzerland. Due to widespread international criticism, as well as growing domestic support for initiatives to reign in the SNB, the bank assured the public that it was returning to its traditional stance of non-interventionism.

Despite its popularity as a safe haven, the Swiss franc is not a reserve currency. Foreign trade involving Switzerland is typically settled in euros or U.S. dollars, not in Swiss franc.

Trading the Swiss Franc

The Swiss franc is actively traded in the foreign exchange spot and forward market. It's most active against the euro, but is also frequently traded against the U.S. dollar, Japanese yen and British pound. The low interest rate environment means that speculators frequently borrow in francs to invest in high yielding currencies and other assets around the world.

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